by Daniel Shvartsman
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Zoom (ZM) was a go-go momentum stock in its first year of trading, with revenue multiples and performance outpacing most of its SAAS (software as a service peers). That was to a degree deserved due to the company's profitable business model and competitive advantages as a smooth, easy-to use video communications platform. But, only to a degree, I'd argue.
You of course know that with the advent of lockdowns, quarantines, and social distancing to combat the spread of COVID-19, Zoom has transcended from growth stock favorite to widely known consumer brand and almost an inverse ETF of the bear market. While value investors (myself included) like to grumble about the market getting irrational about growth stocks, there are some reasons to be optimistic about Zoom's prospects at least as compared to where they stood on January 1st. The increased usage of the product - while costing Zoom more to support - should both accelerate adoption for the long-term and potentially open up new avenues and use cases. On the other hand, the increased focus on Zoom has also highlighted issues the company has, most primarily with security, something hardwired into the company's fantastic success to date.
Akram's Razor and I discussed the cross-currents at play here and where Zoom might be headed next. Akram has long followed the SaaS sector on The Razor's Edge and beyond, and also has some background on ZM from its inception and from looking at it for a private investment. While we recorded this last Wednesday morning, apparently marking a short-term bottom for Zoom, I think it's safe to say there's more volatility ahead for the stock. I hope this provides some useful perspective, click play above to listen.
Topics Covered- 2:30 minute mark - The Zoom setup
- 6:00 - Zoom's origin story and its advantage
- 14:15 - Zoom's killer app
- 16:30 - Questions that are beginning to arise
- 21:15 - The security issues
- 26:30 - Enterprise vs. consumer business model, and being the social distancing play
- 33:00 - Overall market description and Zoom's rise
- 38:15 - The competition
- 47:00 - Justifying the valuation?
- 55:00 - What sort of revenue upside is there
- 1:04:00 - Sorting out temporary from permanent
- 1:14:30 - The Zoom production studio angle
- 1:19:00 - China backlash
- 1:23:00 - Regulation
- 1:28:00 - A final macro note
See also Proteostasis Therapeutics: A Clinical Stage Company That's Worth The Risk on seekingalpha.com
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
